Is the US evolving into a zombie economy?

9th July 2012

In an article entitled: Signs We Are Approaching a Zombie Economy, Patti Domn, the executive news editor for CNBC says that concern about U.S. fiscal policy, the eurozone debt crisis and slow growth in places like China and India, have turned the U.S. economy into "what feels like a slow-moving zombie, leaving businesses and consumers hesitant and reluctant to act."

Those factors combined to hit business confidence and have led to slower activity, evident in Friday's report showing just 80,000 new jobs created in June, she writes.

"The U.S. economy has been unable to achieve escape velocity but the amount of monetary and fiscal stimulus in the system has proven adequate enough to keep it going at a 1-2 percent GDP pace. That is slow by historic recovery standards…it feels like a 'zombie'-economy," said Ian Lyngen, a Senior Treasury Strategist at CRT Capital.

"People are increasingly worried about a double dip," he said.

"It feels like it's sleepwalking," Moody's Economy.com chief economist Mark Zandi said of the economy. "We're walking but not going anywhere fast. I don't think we're dead like a zombie. There is some life underneath, but we are sleepwalking. The reality is people are so nervous and shell shocked, it doesn't take much to get them to stop what they're doing."

Meanwhile, the forlorn state of the labour market has one again yanked the focus of the presidential campaign back to the economy – and the reality that President Barack Obama's hopes for a second term depend on conquering a slothful economy and a jobless rate that has proven terminal for past incumbents.

Ben White and Alexander Burns of Politico say that no president since World War II has won re-election with a jobless rate over 7.4 percent, a figure the economy is now almost certain not to reach before November. "The president is quickly running out of time to bring the jobless rate down with just four reports now remaining before the election. And Friday's report took on added importance as it will help set impressions of the economic trend heading into the summer vacation season, when voters tend to tune out."

And even though the jobless rate is much lower in states like Ohio, Colorado and Michigan – key battleground states, there's not much that could quicken the economic pace between now and November.

"I don't see where the growth is going to come from now until the election," said Matt McDonald, a former Bush administration official now with consulting group Hamilton Place Strategies. "You have a massive European overhang and business leaders are very concerned not just with Europe, but with what is going to happen in the U.S.," McDonald said. "I think it will continue to be a pretty rude intrusion into the president's campaign on a monthly basis from now until the election"